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Banking

Introduction | Back to Outlook Conference Spotlight home | State of the District | National Banking Trends

Spotlight: Outlook Conference

Panel Notes Signs of Improvement in Real Estate

Participants in the Federal Reserve Bank of Atlanta's 2012 Banking Industry Outlook conference highlighted recent signs of improvement in the beleaguered commercial and residential real estate markets. The March 1 event featured a panel of real estate experts discussing trends in both sectors.

For Atlanta-based builder Traton Homes, the year "has gotten off to a really good start," said Harry Dinham, the company's chief financial officer. David Auld, president of homebuilder D.R. Horton's East region, voiced similar optimism, noting that lessening fears among consumers, affordable home prices, and low interest rates are motivating buyers. However, much of the activity is still concentrated in so-called A markets with good schools, the panelists said.

Further, the housing crisis and recession have changed homebuyer preferences somewhat, Dinham explained, with more buyers looking for moderately sized homes in prime locations near job centers and with convenient access to highways. Looking ahead, both builders expect to increase housing starts in 2012. However, neither expects housing starts to return to levels seen during the boom.

Meanwhile, performance in the commercial real estate (CRE) market has been "uneven," said Mike Straneva, a partner at Ernst & Young. The strongest market segments have been fully leased core properties in "24/7" cities like Boston and New York. Strength is also found in the multifamily segment, which has received a boost from increased demand and higher rental rates. Industrial properties near ports have also shown some strength.

Much like the residential side, performance in the CRE market is subject to such outside influences as the European debt crisis, the upcoming U.S. presidential elections, and other factors not directly related to real estate, noted Lance Patterson, a principal at Patterson Real Estate Advisory Group. Straneva agreed, noting the importance of economic fundamentals such as job growth and consumer spending in influencing CRE performance.

The panel discussion also broached concerns about "overheating" in the multifamily market. That segment has received a lot of interest, but its growth is being driven by household formation trends, Straneva explained. For one, today's college students will be looking for apartments as they enter the workforce. And as the economy continues to recover, young adults who have been living at home or sharing rooms will also boost demand for rental units, as will households that had been unable to purchase a home. Capital markets, which have restrained growth in the sector, will also play a role in preventing it from overheating, Patterson noted.